AXA to acquire 100% of XL Group Ltd, global Property & Casualty commercial lines insurer and reinsurer

A major leap forward in AXA’s strategic journey
Creating the leading global P&C Commercial lines player across all lines
Strong complementarities expected to fuel future earnings growth and value creation
Effective use of proceeds from the planned US IPO and intended subsequent sell-downs, at
Ambition 2020 targets reaffirmed

PARIS, 06-Mar-2018 — /EuropaWire/ — AXA announced today that it has entered into an agreement to acquire 100% of XL Group Ltd (NYSE: XL), a leading global Property & Casualty commercial lines insurer and reinsurer with strong presence in North America, Europe, Lloyd’s and Asia-Pacific. The merger agreement has been unanimously approved by the boards of AXA and XL Group. Total consideration for the acquisition would amount to USD 15.3 billion (or Euro 12.4 billion), to be fully paid in cash. Under the terms of the transaction, XL Group shareholders will receive USD 57.60 per share. This represents a premium of 33% to XL Group closing share price on March 2, 2018.
This transaction is a unique strategic opportunity for AXA to shift its business profile from predominantly L&S business to predominantly P&C business, and will enable the Group to become the #1 global P&C Commercial lines insurer based on gross written premiums. The transaction offers significant long-term value creation for our stakeholders with increased risk diversification, higher cash remittance potential and reinforced growth prospects. The future AXA will see its profile significantly rebalanced towards insurance risks and away from financial risks.
XL Group has the right geographical footprint, world-class teams with recognized expertise and is renowned for innovative client solutions. Our combined P&C Commercial lines operations, will have a strong position in the large and upper mid- market space, including in specialty lines and reinsurance, and will complement and further enhance AXA’s already strong presence in the SME segment. The two companies share a common culture around people, risk management and innovation, positioning AXA uniquely for the evolving future of the P&C industry. — THOMAS BUBERL
CHIEF EXECUTIVE OFFICER OF AXA
Today marks an unrivalled opportunity to accelerate our strategy with a new strength and dimension. With every confidence in how we have positioned XL Group for the future, it is a substantial testament to AXA’s leadership and commitment to maintaining the XL Group brand and culture that we have come to an alignment. We are excited at the opportunity to build the scale, geographical footprint, product portfolio, and the unmatched commitment to innovation that relevance in the global insurance industry requires. In AXA we have found like-minded partners committed to the absolute necessity to innovate and move this industry forward. — MIKE MCGAVICK
CHIEF EXECUTIVE OFFICER OF XL GROUP
XL Group Overview
Founded in 1986, XL Group is a leader in P&C Commercial and specialty lines with an active global network. XL Group generated USD 15 billion of GWP in FY17. It is a growing franchise with a high-quality underwriting platform and a rich and diversified product offering. XL Group is a highly agile company renowned for innovative client solutions and has a comprehensive business model of originating, packaging and selling risks. XL Group has ca. 7,400 colleagues worldwide and has a strong presence across specialty and mid-market segments via insurance and reinsurance.
Strategic Rationale
This acquisition is aligned with AXA’s Ambition 2020 preferred segments favoring product lines with high frequency customer contacts, quality service and superior technical expertise. XL Group provides both a premier specialty platform complementing and diversifying AXA’s existing commercial lines insurance portfolio, and reinsurance capabilities that will allow AXA an access to enhanced diversification and alternative capital. The combination of AXA’s and XL Group’s existing position will propel the Group to the #1 global position in P&C Commercial lines with combined 2016 revenues of ca. Euro 30 billion and total P&C revenues of ca. Euro 48 billion.
The opportunity to acquire XL Group has led AXA to review its exit strategy from its existing US operations4 which AXA now expects to accelerate. Together with the planned IPO of AXA’s US operations (expected in 1H 2018 subject to market conditions) and intended subsequent sell-downs, this transaction would gear AXA further towards technical margins less sensitive to financial markets.
The strong complementarities between AXA and XL Group provides opportunities for significant value creation, offsetting the planned US IPO earnings dilution as soon as 2018. It also allows for material capital diversification benefits under the Solvency II framework and a strong return on investment. In this context, AXA also reaffirmed its Ambition 2020 targets.
Governance
Upon completion of the transaction, the combined operations of XL Group, AXA Corporate Solutions (AXA’s large commercial P&C and specialty business) and AXA Art will be led by Greg Hendrick, currently the President and Chief Operating Officer of XL Group, who will be appointed CEO of the combined entity and join AXA Group’s management committee, reporting to Thomas Buberl. Greg Hendrick will work closely with Doina Palici-Chehab, AXA Corporate Solutions’ Executive Chairwoman, and Rob Brown, AXA Corporate Solutions’ CEO, to build an integrated organization and leadership team for this new company. Following the closing, Mike McGavick, XL Group’s current CEO, will become Vice- Chairman of the combined P&C Commercial lines operations and special adviser to Thomas Buberl, AXA Group CEO, to advise on integration-related and other strategic matters.
Completion
Completion of the transaction is subject to approval by XL Group shareholders and other customary closing conditions, including the receipt of required regulatory approvals, and is expected to take place during the second half of 2018.
Financial details of the acquisition
Transaction terms:

Total transaction value of USD 15.3 billion (or Euro 12.4 billion), representing a premium of 33% to XL Group closing share price on March 2, 2018.
P/E of 11x post synergies
10% return on investment

Financing and capital impacts:

Financed by ca. Euro 3.5 billion of cash at hand, ca. Euro 6.0 billion from the planned US IPO and related transactions, ca. Euro 3.0 billion of subordinated debt
Euro 9 billion of backup bridge financing already in place
Estimated debt gearing at ca. 32%, of which +3 points from the US IPO related debt issuance, at year end 2018 with a target to be reduced below 28% within two years
Solvency II ratio estimated to be in the range of 190% – 200% year end 2018, acquisition impact to be mitigated by operating return and the planned US IPO
Capital synergies of ca. 30% reduction of XL Group’s SCR or +5 to +10 points benefit in the AXA Group Solvency II ratio expected by 2020 from capital diversification following the approval and integration of XL Group internal model

Earnings, synergies and cash:

Compensating the US IPO earnings impact as soon as 2018
Substantial synergies of ca. USD 0.4 billion pre-tax earnings per annum (ca. USD 0.2 billion from cost synergies, ca. USD 0.1 billion from revenues synergies and ca. USD 0.1 billion to be saved through reinsurance net of additional reinsurance bought to align with AXA Group’s risk appetite)
Cash accretive with more than 80% remittance ratio from XL Group

Medium and long-term outlook following the transactions

Reduces sensitivities to financial markets
Lower beta and cost of equity
Increases cash remittance potential
Reinforces Group’s growth potential

About XL Group

A leader in P&C Commercial and Tier 1 specialty lines player
USD 15 billion of GWP in 2017, of which ca. USD 5 billion GWP from reinsurance
Long-term average loss ratio of 63%
Premier specialty platform with top-level capabilities
Reinsurance business providing access to diversification and alternative capital
Strong access to large and mid-market segment

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SOURCE: AXA